How COVID-19 Is Impacting CPG Brands
Despite China confirming the first case of COVID-19 approximately two months ago, Americans have generally considered it more of a looming threat than a clear and present danger. That all seemed to quickly change, however, after the Presidential press conference on February 26.
In the weeks since that tipping point, U.S. consumer purchasing behavior has reached a threshold that Nielsen calls “pantry preparation.” Pantry preparation is characterized by the stockpiling of shelf-stable foods and health-safety products, as well as a spike in store visits and growing basket sizes. While the United States has yet to reach the subsequent thresholds of “quarantined living preparation” and “restricted living” that we’ve seen in Italy and China, many CPG brands are already facing challenges from this black swan event.
While the level of disruption will vary across CPG categories, it’s important to have a clear understanding of how COVID-19 could create challenges for your particular business and for the whole industry. When consulting clients, I often say that “challenges are actually opportunities if you see them through the right lens.” In this article, I will discuss a few of the challenges (and connected opportunities) e-commerce executives at major CPG brands may be facing as a result of the current coronavirus pandemic.
Challenge #1: Remote Work Environment
As COVID-19 cases in the United States grow, your CPG brand will have to wrestle with the reality of having much of your staff working from home. Even if your company’s office plans to stay open indefinitely, many staff members will be faced with abnormal personal constraints that will force them to need special remote work accommodations, such as their children’s schools being closed. According to the Bureau of Labor Statistics, less than 30% of Americans currently have the option to work from home, so setting up a game plan to overcome this likely unfamiliar working environment will be key to the short-term success of your brand.
Opportunity: Some economists consider the United States’ economy to be in a state of near full employment, which makes finding talent increasingly difficult. This competition for talent has led many companies to offer the popular option of working remotely. Buffer’s 2019 State of Remote Work report found that virtually every surveyed individual wanted the option to work remotely at least some of the time for the rest of their careers. While creating a game plan to accommodate the remote work needs caused by COVID-19 is certainly a challenge, it can also be an opportunity that provides employee recruiting benefits.
Challenge #2: Supply Chain Management
As U.S. consumers increasingly “panic buy” items to prepare for possible quarantined living, even the best supply chain professionals are scrambling to meet record demand. During this period of elevated purchasing, CPG brands should be assessing the weakest links in their supply chains, from raw materials to logistics. Furthermore, operations team members should be assessing which product categories have the most exposure to this current environment. While going out of stock is never ideal, brands will have to make tough decisions around scaling up products that are in high demand or best-sellers.
Opportunity: No matter the size of your brand, you must have a contingency plan. Your customers, both B2B and B2C, are counting on your ability to have steadiness of supply. It is not enough to have “set it and forget it” contingency plans, as these can create a false sense of security. While even the best contingency plans can’t account for everything, they should focus on creating levels of redundancy, diversification and flexibility throughout the supply chain. Additionally, these plans should be communicated and tested frequently by the whole organization to ensure they are vetted for possible pinch points.
Challenge #3: Hesitancy to Shop in Stores
Many health experts are telling Americans to avoid crowded places because of COVID-19. That has led to a fall in total retail traffic of just over 9% in the first week of March. According to eMarketer, about half of Americans are likely to avoid physical stores as the coronavirus worsens. Despite the viral images and videos of long lines at Walmart, Costco and other retailers, these statistics should still worry the CPG industry, as the vast majority of CPG products are still bought in physical stores.
Opportunity: The fear of shopping in stores has resulted in e-commerce retailers experiencing a 52% growth rate from January 27 to February 23. With only 10% of U.S. consumers regularly shopping online for groceries, COVID-19 could be the catalyst that creates new shopping habits that accelerate the e-commerce trend. CPG brands should use this as an opportunity to invest heavily into winning on the digital shelf by ensuring product listings are optimized for search and conversion and inventory is available on retailer websites.
Challenge #4: Overall Fear & Anxiety
Truth is, the coronavirus pandemic is a serious situation and it deserves America’s attention. Even with the endless supply of information available in today’s uber-connected world, new and potentially dangerous situations naturally leave humans with a certain level of fear and anxiety. When people don’t have adequate information, or are overloaded with too much information, especially during an unfamiliar situation, there is a natural reaction to fill in the blanks with the “worst case scenario”— or at least to question the myriad of “what ifs.”
Opportunity: For decades, CPG brands have been playing the “telephone game” with end customers. By relying on physical retailers to build their sales, CPG companies usually have weaker relationships with the end customer. With consumers being fearful of products running out of stock, especially in categories like food, beverage, and health and household, it becomes extremely important to reassure Americans with transparent communication. The best way to overcome fear and uncertainty in a situation is to provide an increased level of transparency.
As the global health crisis continues to evolve, significant impacts on the CPG industry will inevitably surface in the coming months and maybe even years. While pressure breaks glass, it also creates diamonds. This could be the defining moment for your CPG brand, so embrace the challenges and look for opportunities. Bad companies are destroyed by crises. Good companies survive them. Great companies are improved by them.